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Trump Notches Key Trade Victory Against China in WTO Ruling

(Bloomberg) -- President Donald Trump scored a key trade victory against China when the World Trade Organization ruled that Beijing provided farm subsidies in excess of its international trade commitments.

The landmark ruling on Thursday could force Beijing to roll back its agricultural outlays -- something that could help make America’s farmers more competitive as they struggle with the fallout of Trump’s trade war with China.

"This panel report is a significant victory for U.S. agriculture that will help American farmers compete on a more level playing field," the office of the U.S. Trade Representative said in a statement. “We expect China to quickly come into compliance with its WTO obligations,” Trade Representative Robert Lighthizer said.

“U.S. farmers have been hurt by China’s overproduction and protectionist measures for too long and it’s past time for China to start living up to its commitments," said Vince Peterson, the president of U.S. Wheat Associates, a Washington-based farm lobby.

The decision from the Geneva-based trade body also provides the Trump administration with added leverage in negotiations aimed at reducing Beijing’s use of state-directed subsidies to benefit Chinese farmers and manufacturers. On Wednesday, Lighthizer told lawmakers in Washington that he was talking to his Chinese counterparts about "resolving" the dispute in the context of the Trump administration’s broader trade negotiations with Beijing.

Chinese Appeal

China may still be able to snatch victory from the jaws of defeat if it appeals the case to the WTO appellate body, which could soon be paralyzed due to the Trump administration’s block on nominees.

China’s ambassador to the WTO, Zhang Xiangchen, said Beijing has not yet decided whether it will appeal the ruling. That’s because the Chinese government is already considering fundamental reforms to its agricultural-subsidy schemes, Zhang told Bloomberg in an interview.

Thursday’s ruling deals with the first of two U.S. dispute cases that allege Beijing deployed $100 billion worth of illegal farm subsidies and imposed unfair import quotas that harm U.S. corn, rice and wheat producers. The WTO has issued an interim report in the import-quota case to U.S. and Chinese officials, but the ruling has not yet been made public.

The WTO ruling generally backed the U.S. argument that China offered "market price support" that exceeded subsidy limits Beijing agreed to when it joined the WTO in 2001. Not all the U.S.’s claims were upheld, however, and the WTO declined to rule on China’s corn subsidies because China ended the program before the U.S. dispute was filed.

Beijing is considering the impact of Trump’s decision to block nominees to the WTO appellate body -- a seven-member panel of trade experts that serves as the final arbiter of global trade disputes. When the appellate body becomes incapacitated later this year, the U.S. won’t be able to seek WTO recourse to force China to change its subsidy programs.

Subsidy Program

The U.S. argued that between 2012 and 2015 the Chinese government announced an "applied administered price" that it would make available to farmers immediately upon initiation of each year’s subsidy program. The U.S. contended that in doing so the Chinese government ensured commodity prices would remain at levels that gave an advantage to domestic producers over their foreign competitors.

Later this year, the WTO is expected to issue a second ruling in a separate but related U.S. dispute over China’s import quotas for rice, corn and wheat. Trade experts also expect the U.S. will win that dispute, which alleges China applied discriminatory tariff-rate quotas (TRQs) for rice, wheat, and corn that undermined the ability of U.S. farmers to export their grain.

U.S. farming groups are hopeful that a resolution to the U.S.-China agriculture disputes could provide the breakthrough needed to push China towards reforming its farm policies and in turn, provide a path towards a new WTO agreement on agriculture.

"A final outcome on these cases could be a factor in terms of moving these negotiations along in a more straightforward and faster conclusion," said Floyd Gaibler, the director of trade policy for the Washington-based U.S. Grains Council.

©2019 Bloomberg L.P.